Who is Considered an NRI According to the Income Tax Act?

The term Non-Resident Indian (NRI) under the Income Tax Act, 1961 is determined by the individual’s residential status each financial year, not just their nationality or physical location. Below are the key sub-points you can use in an article on this subject:

Criteria for Determining Residential Status

• 182-day Rule: If a person is in India for 182 days or more during the relevant financial year, they are considered a resident. Otherwise, they may qualify as an NRI.
• 60-day & 365-day Rule: If a person is in India for at least 60 days in the relevant year and 365 days or more in the previous four years, they are treated as a resident; failing this, they are an NRI.
  • Exception: For Indian citizens or people of Indian origin visiting India or leaving India for employment outside, the 60 days is extended to 182 days.

Recent Updates and High-Income NRIs

• 120-day Rule for High-Income NRIs: If a person of Indian origin with Indian income over ₹15 lakh (excluding foreign sources) visits India for 120 days or more (but less than 182 days), and has stayed 365 days or more in the past four years, they may be an RNOR (Resident but Not Ordinarily Resident).
• The definition and tests are revisited every financial year, so status can change each year depending on travel patterns.

Deemed Resident (Special Scenario)

• Indian citizens with Indian income above ₹15 lakh, who are not liable to pay tax in any other country, are deemed Indian residents for tax purposes, even if they do not satisfy the day-count criteria.

The “Rule of Ship” for Seafarers (Indian Crew on Ships)

• Crew Members’ Special Calculation: For Indian citizens working as crew on Indian ships, the stay in India is calculated by excluding the period from the start date to the end date noted in the Continuous Discharge Certificate (CDC), provided the voyage is from an Indian port to a foreign port or vice versa, as per Merchant Shipping rules effective April 1, 2015.
• Counting Days Outside India: The period noted in the CDC is excluded from the 182-day stay calculation, even if the ship operates within Indian coastal waters during this period.
• Start of Counting ‘Outside India’: Days are counted as outside India only once the ship crosses India’s coastal boundaries, which are defined by the ’12 nautical miles rule.’ Before crossing, time is considered as spent in India.

The 12 Nautical Miles Rule — Territorial Waters of India

• Definition and Legal Range: As per Indian law and international conventions, India’s territorial waters extend 12 nautical miles from the Indian coastline’s baseline.
• Tax Implications: For tax residency (and GST laws), India includes its territory up to 12 nautical miles into the sea. So, for seafarers and other individuals, time spent on a ship within this boundary is considered as time spent in India, unless the special CDC rules for crew apply.
• Beyond 12 Nautical Miles: Any period on a ship outside this 12-nautical-mile limit is considered as outside India, relevant for both calculating NRI status and other legal implications

What Are the Differences Between ROR, RNOR, and NRI Status for Income Tax Purposes?

Status	Who qualifies?	What income is taxed in India?
ROR	Resident and Ordinarily Resident – Stayed in India for 182+ days in a year, or – 60+ days in a year & 365+ days in last 4 years AND – Resident for 2 out of the last 10 years – Stayed 730+ days in the last 7 years	Global income (India + abroad)
RNOR	Resident but Not Ordinarily Resident – Resident this year, but – Non-resident for 9 out of the last 10 years, or – Stayed < 730 days in the last 7 years, or – Indian citizen/PIO with Indian income > ₹15 lakh & stay 120–181 days, or – Deemed resident (no tax liability elsewhere, Indian income > ₹15 lakh)	Only Indian income (and some business/profession income controlled from India)
NRI/NR	Non-Resident – Did not meet above resident conditions (less than 182 days, or less than 60+365 days rule)	Only Indian income

What Are the Income Tax Slab Rates for NRIs in FY 2024-25?

For NRIs (Non-Resident Indians), the income tax slab rates for the financial year 2024-25 are as follows:

New Tax Regime (Default for NRIs)  

From AY 2025-26, the new tax regime is the default for both residents and NRIs, offering uniform slab rates, higher exemption limits, and lower tax rates, but without most deductions and exemptions. NRIs are taxed on income earned or accrued in India and can opt for the old regime by explicitly choosing it while filing returns. The new regime aims to simplify compliance and

potentially lower tax liability.

Income Slab	Tax Rate
Up to ₹3,00,000	Nil
₹3,00,001 – ₹7,00,000	5%
₹7,00,001 – ₹10,00,000	10%
₹10,00,001 – ₹12,00,000	15%
₹12,00,001 – ₹15,00,000	20%
Above ₹15,00,000	30%

Old Tax Regime 

NRIs can opt for the old tax regime for AY 2025-26 (FY 2024-25) if they wish to claim deductions like those under Sections 80C and 80D. While it has a lower basic exemption limit than the new regime, it remains beneficial for NRIs with higher Indian income and eligible deductions. Though the new regime is default, NRIs can choose the old one while filing their returns. The old regime slab rates for AY 2025-26 are as follows:

Income Slab	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5%
₹5,00,001 – ₹10,00,000	20%
Above ₹10,00,000	30%

Important Points for NRIs:

• There is no higher exemption limit for senior citizens—all NRIs are taxed the same, regardless of age.
• Section 87A rebate does not apply to NRIs. This tax rebate is only available to individuals who are residents of India for tax purposes. If you qualify as a Non-Resident Indian (NRI), you cannot claim the 87A rebate, even if your income is within the eligible limit

ITR Form Applicability for NRI Assessees?

Up to Assessment Year (AY) 2017-18, Non-Resident Individuals (NRIs) were allowed to file ITR 1 for income earned or accrued in India. However, from FY 2018-19 onwards, the eligibility criteria for filing ITR 1 have changed. Now, ITR 1 is restricted to Resident and Ordinarily Resident (ROR) individuals only and cannot be used by NRIs.

Which Income Should an NRI Report in the Income Tax Return (ITR)?

If you are an NRI (Non-Resident Indian), you only need to report and pay tax on income that is earned or received in India. You do not have to report your foreign income in your Indian tax return.

Here are the main types of income you should report:

• Salary received in India or for services provided in India
• Rental income from property located in India
• Interest earned on NRO bank accounts and fixed deposits in India
• Capital gains from selling property, shares, or other assets in India
• Dividends from Indian companies
• Any other income generated or received in India

If your total income from these sources is more than ₹2.5 lakh (old regime) or ₹3 lakh (new regime) in a financial year, you must file an ITR in India. Even if your income is below these limits, you may want to file an ITR to claim a refund of TDS (tax deducted at source) or to carry forward capital losses.

You do not need to report:

• Salary, business profits, or rental income earned outside India
• Interest from foreign bank accounts

In summary, only Indian-sourced income needs to be reported by NRIs in their Indian tax return.

Do NRIs have to pay advance tax?

Yes. Even Non-Resident Indians come under the ambit of Advance tax. Advance tax is paid in the financial year/previous year on the basis of the estimated tax liability for the year. If the tax liability is higher than Rs. 10,000, then the assessee is required to pay their advance tax liability in four instalments as mentioned in the Act.

In case of failure to pay advance tax on the specified due dates or on payment of less advance tax than the actual tax liability, interest under Section 234B & Section 234C is levied on the taxpayer.

The due dates and the amount payable of the advance tax are:

Due Date of Instalment	Amount Payable
On or before 15th June	Up to 15% of the total advance tax
On or before 15th September	Up to 45% of the total advance tax
On or before 15th December	Up to 75% of the total advance tax
On or before 15th March	Up to 100% of the total advance tax

 

Surcharge Rates for NRIs under Existing and New Tax Regimes

Level of Income (₹)	Existing Regime: Dividend Income & Specified Capital Gains	Existing Regime: Other Income	New Regime: Dividend Income & Specified Capital Gains	New Regime: Other Income
Less than 50 lakhs	Nil	Nil	Nil	Nil
50 lakh – 1 crore	10%	10%	10%	10%
1 crore – 2 crores	15%	15%	15%	15%
2 crore – 5 crores	15%	25%	15%	25%
Above 5 crores	15%	37%	15%	25%

 

Note:

• For both regimes, a Health and Education Cess of 4% is levied on the total of income tax plus surcharge.
• Dividend income and capital gains from specified assets (sections 111A, 112, and 112A) attract a maximum surcharge of 15%, even for higher income brackets.

Benefits of filing Income Tax Return in India for NRIs

Filing Income Tax Return timely offers these benefits to NRIs: –

• Claiming Tax Refunds: NRIs often face Tax Deducted at Source (TDS) on income generated in India, such as interest on NRO accounts or rent. Filing an ITR is the only way to claim a refund if excess TDS has been deducted.
• Carrying Forward Losses: If an NRI incurs a capital loss on shares, mutual funds, or property sales in India, an ITR allows them to carry forward these losses to future years, enabling the offset of future gains and reducing tax liability.
• Establishing Financial Credibility: ITRs serve as reliable proof of income for various purposes, including visa applications, acquiring home loans, or investments. Many financial institutions ask for ITR copies to assess eligibility.
• Claiming Foreign Tax Credit (FTC): A filed ITR enables NRIs to claim credit for taxes paid in India when filing in their country of residence, helping them avoid double taxation on the same income.
• Smooth Property Transactions: Filing ITRs provides solid proof of income and source of funds, which can be crucial during property purchases, sales, or while resolving queries from the tax authorities regarding real estate investments in India.
• Eligibility for Loans and Credit: Indian banks and financial institutions usually require proof of ITR filings to process home, personal, or education loans for NRIs, enabling easier access to credit facilities.

How are Gains from the Sale of Property in India Taxed to NRIs?

Capital Gains Tax for NRIs on Sale of Property in India

If you’re an NRI (Non-Resident Indian) and you sell a house in India, you’ll need to pay capital gains tax. The tax you pay depends on how long you’ve owned the property.

Types of Capital Gains:

1. Long-Term Capital Gains (LTCG):
   If you sell the property after holding it for more than 2 years, the profit is considered a long-term capital gain.

         Capital Gains Tax Rates for NRIs:

         If sold before 23rd July 2024:

• Long-term capital gains (LTCG) on the sale of property were taxed at 20% with indexation benefit.
• Indexation allowed adjustment of the purchase price for inflation, reducing taxable gains.

         If sold on or after 23rd July 2024:

• For property acquired on or after 23 July 2024, LTCG is taxed at 12.5% without indexation.

         For property acquired before 23 July 2024 and sold on or after this date:

• Resident individuals and HUFs have an option: pay tax at 20% with indexation or 12.5% without indexation, whichever is lower.
• NRIs do not have this option; they must pay tax at 12.5% without indexation for sales on or after 23 July 2024, even if the property was purchased before this date

1. Short-Term Capital Gains (STCG):
   If you sell the property within 2 years of buying it, the profit is treated as short-term capital gain.

         Capital Gains Tax Rates for NRIs:

• Taxed as per your regular income tax slab rates.
• Taxed at applicable slab rates (typically 30% for NRIs), with no change before or after 23 July 2024.

               Surcharge and health & education cess (4%) apply in all cases.

When must an NRI file an Income Tax Return (ITR) in India?

An NRI (Non-Resident Indian) is required to file an Income Tax Return (ITR) in India in the following situations:

• Your total income earned or received in India exceeds ₹2.5 lakh (old regime) or ₹3 lakh (new regime) in a financial year.
• You have deposited more than ₹50 lakh in a savings account or more than ₹1 crore in a current account in India during the year.
• The total TDS (tax deducted at source) or TCS (tax collected at source) on your Indian income is more than ₹25,000 in a year.
• You have spent more than ₹2 lakh from your Indian bank account on foreign travel for yourself or others (except for travel to certain neighboring countries and pilgrimage destinations).
• You want to claim a refund of TDS deducted on your Indian income, even if your income is below the basic exemption limit.
• You have capital losses in India and want to carry them forward to future years.

If you do not have any income from India, you are generally not required to file an ITR. However, filing can be helpful for claiming refunds or for documentation purposes, such as visa or loan applications.

TDS Rules for NRIs (Non-Resident Indians)

Tax Deducted at Source (TDS) applies differently to NRIs compared to resident Indians. Here’s a clear overview of the key TDS rules for NRIs for FY 2025-26:

1. General Principles

• TDS is deducted on income earned or received in India by NRIs.
• The payer (tenant, buyer, bank, etc.) is responsible for deducting TDS before making payments to the NRI.
• TDS is deducted at higher rates for NRIs compared to residents and applies regardless of the income amount (no threshold exemption in most cases).

1. TDS Rates on Different Types of Income

Income Type	TDS Rate (Base)	Notes
Interest (NRO accounts, FDs)	30%	NRE/FCNR account interest is tax-free.
Rental income	30% + cess	Tenant must deduct TDS on every payment.
Short-term capital gains (property <2 yrs)	As per the slab	Up to 30% + surcharge + cess
Long-term capital gains (property ≥2 yrs)	12.5% (from 23 July 2024)	No indexation benefit for NRIs.
Long-term capital gains (before 23 July 2024)	20%	With indexation benefit.
Dividends from Indian companies	20%
Other income (business, royalties, etc.)	30%

Note: Surcharge and health & education cess (4%) apply on top of base rates, depending on total income.

1. TDS on Sale of Property by NRI

• Buyer must deduct TDS before making payment to the NRI seller.
• Long-term capital gains (property held ≥2 years):
  • 12.5% TDS (from 23 July 2024, without indexation)
  • 20% TDS (before 23 July 2024, with indexation)
• Short-term capital gains (property held <2 years):
  • TDS as per income tax slab (up to 30%).
• TDS is calculated on the capital gain amount, not the total sale value, if a lower TDS certificate is obtained; otherwise, it’s on the full sale value.

1. TDS on Rental Income

• The tenant must deduct TDS at 30% + cess (totalling 31.2%) on the gross rent paid to the NRI landlord, regardless of the amount.
• The tenant must obtain a Tax Deduction Account Number (TAN) and file Form 15CA/15CB for payments.

1. No Nil TDS Certificate (2025 Onwards)

• Under the new Income Tax Bill, 2025, NRIs can no longer obtain a “nil TDS” certificate.
• Only lower TDS certificates are available, allowing TDS at a reduced rate if approved by the tax officer, but never zero.
• NRIs must file an income tax return to claim refunds if excess TDS is deducted.

6. Other key points

• If the NRI does not provide a valid PAN, TDS is deducted at a higher rate as per Section 206AA.
• TDS applies to each payment (monthly rent, sale proceeds, etc.), not just annual totals.
• NRIs can apply for a lower TDS certificate if their actual tax liability is less than the standard TDS rate.
• Refunds for excess TDS can be claimed by filing an ITR in India.

Lower Deduction Certificate (LDC) for NRI

A Lower Deduction Certificate (LDC) is an important facility available to Non-Resident Indians (NRIs) under the Indian Income Tax Act. When NRIs earn income in India—particularly interest, rent, or proceeds from property sales—these payments are typically subject to high rates of Tax Deducted at Source (TDS) by payers or banks. Sometimes, the actual Indian tax liability of the NRI may be much lower than the standard TDS rate.

• Purpose of LDC: An NRI can apply for an LDC from the Indian tax authorities to request a lower or nil rate of TDS on specified income streams if the calculated tax liability is less than the applicable TDS.
• Application Process: The NRI (or their representative) submits an application using Form 13 via the TRACES portal, providing supporting documents like tax computation, DTAA details (if any), and proof of past income/taxes.
• Benefit: Once granted, the LDC instructs banks, tenants, or buyers of property to deduct TDS at the approved lower rate, increasing cash flow and avoiding the hassle of later refunds.
• Applicability: LDCs are typically used for income such as sale proceeds of immovable property, rent, interest earned on NRO accounts, or other taxable receipts in India.
• Validity: The certificate is generally valid for the financial year for which it is issued. The process must be repeated annually if continued lower deduction is needed.

Obtaining an LDC helps NRIs streamline their Indian tax compliance, minimize excess TDS, and reduce delays or complications related to tax refunds.

Double Taxation Avoidance Agreement (DTAA): A Lifeline for NRIs

India has Double Taxation Avoidance Agreements (DTAAs) with several countries to prevent double taxation for NRIs. Under these treaties, NRIs can claim relief or credit for taxes paid in India on income that is also taxable in their home country.

A Double Taxation Avoidance Agreement (DTAA) is a treaty signed between two countries to prevent residents of one country from being taxed twice on the same income earned in the other country. This is crucial for individuals like NRIs (Non-Resident Indians) who may work abroad and earn income in their country of residence while still maintaining ties to India. Without a DTAA, they could face the double whammy of paying taxes in both countries on the same income.

A Double Taxation Avoidance Agreement (DTAA) is a treaty between two countries aimed at preventing residents from being taxed twice on the same income. This is crucial for NRIs who work abroad but maintain ties to India. Without a DTAA, they could face double taxation on their income.